Market Report: HMV dogged by traders' misgivings over bid

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The Independent Online

The buyout house Permira looks certain to increase the terms of its bid for HMV Group with an offer priced at 200p a share, although traders preferred to ignore the rumours yesterday and continued to sell the stock.

Shares in the CD and DVD retailer fell 1.25p to 186.75p, despite private-equity sources confirming a second bid is on its way. HMV has turned down 190p, and some traders felt that even an extra 10p might still not be enough to persuade the management to sell out.

One trader said: "It might take more than Permira is prepared to offer to persuade management and shareholders to give in; many people around the market are not convinced this deal has merits for Permira anyway, so I would not be surprised if this is their final offer. They are not likely to lose much sleep if they fail to buy a high street retailer that is under pressure from digital downloads."

A weak opening on Wall Street saw the London market give back most of its early gains. Strong results from the insurer Aviva and the emerging markets bank Standard Chartered saw the FTSE 100 gain 35 points in early trade, wiping out Tuesday's losses. But a poor opening in the Dow Jones index dragged London down in the afternoon, and the blue-chip gauge closed dow 11.1 at 5,833. Standard Chartered was the day's best performer, closing up 56p at 1,527p. Aviva added 29p to 820p.

On the subject of indices, the FTSE is to announce its quarterly index changes on Wednesday. A move in or out of an index means tracker funds buying or selling a stock accordingly, so inclusion or expulsion from an index can provide traders with a short-term direction indicator.

Likely to be shown the door from the FTSE 100 are Cable & Wireless, down 1.75p at 105.25p, Daily Mail & General Trust, 3p better at 656.5p, and P&O, given the green light to be bought by DP World by the UK courts yesterday, up 1.75p to 519p. According to Edinburgh Tracker, those most likely to be coming in are mining groups Lonmin, a penny better at 2,345p, and Vedanta Resources, up 23p at 1,122p, and the steel maker Corus Group, half a penny better at 72.75p, giving the FTSE 100 an even heavier weighting towards mining stocks.

In the FTSE 250, the embattled pharmaceuticals group SkyePharma, up 2p at 42.5p, and the photo booth operator Photo-Me International, down 1.25p at 97p, may be relegated. They are likely to be replaced by the oil exploration and production group JKX Oil & Gas, unchanged at 355p, and the payment collection network operator PayPoint, down 19.75p at 670.25p.

Most of the big movers were in second-line stocks with CSR, Wolfson and Hunting benefiting from recent strong numbers and broker upgrades. The heavyweight broker Citigroup believes CSR could be worth 2,246p if bluetooth exceeds 2006 expectations, although that is a "blue sky" valuation. If it doesn't its shares should still be worth 1,409p based on the growth of CSR's next-generation products, WiFi and UWB. Shares in CSR climbed 58p to 1041p.

CSR was also helped by bullish comment from the chief executive of Wolfson Microelectronics, David Milne, in an interview with Bloomberg. He said profits at the Edinburgh-based microchip producer have tripled in the past year because of demand for multimedia products and iPods. Many observers feel the group's greatest opportunity in the next year lies in the mobile phone market where its technology allows the conversion of digital signals into an analogue format. Shares in Wolfson rose 18.25p to 397.25.

The oil services group Hunting has benefited from a strong crude price and a rush of smaller exploration and production companies using its services. The Dutch broker ABN Amro was first out of the block with upgrades to 2006 expectations as the company reported a 148 per cent rise in pre-tax profitsto £44.9m. Shares in Hunting surged 17.75p to 365p.

The broker Merrill Lynch placed a 9.8 per cent stake in Tomkins, equal to about 76 million shares, on behalf of two large investors. To get the order away, Merrill accepted a lower price and the trade was done at 318p, sending Tomkins shares 19.25p lower at 316p, the worst performer in the FTSE 250.

Traders were watching China Shoto, as it reached new highs on the back of an upbeat debut trading statement. The company, which supplies power to the Chinese telecoms market, gained 23p to 152.5p, and told the market it expects debut numbers, out on 18 April, to be above City expectations.

Finally, the minnow Accsys Technologies improved 1p to €1.28 as it announced a deal to supply BSW timber, the UK's largest sawmiller, with its Accoya wood, a "new species" of hardwood. Accys has developed technology turning softwood into hardwood faster than through the natural process.